In another week made short by the holiday in Brazil, the sugar futures market in NY closed Friday at a 19-point fall against the previous week’s closing. May/2017 closed at 16.41 cents per pound. The other maturity months closed unchanged. For the maturities as of October/2018 there was appreciation.
The market was caught by surprise with the gas price increase announced by Petrobrás this Thursday. With the oil price falling on the foreign market, we expected there would be a decrease in the gas price at the pump. However, the favorable conditions for inflation at the moment make room for the increase in fuel price and give the Brazilian state-run company a rare opportunity to replenish the cash flow,which is so debilitated. It is true that the RBOB (gas futures contract) has gone up by more than 10% over the last eight weeks, though oil and heating oil have fallen. In the yearly accumulated, however, natural gas fell 19.7%, sugar 14.5%, gas 13.1% and oil 10%.
Sugar in NY is still stuck on a boring price interval between 16 and 17 cents per pound and there isn’t a whole lot in the horizon pointing to changes in this behavior. Gas price increase slightly improves the arbitrage with ethanol and reinforces our feelings that 16 cents per pound continues to be a strong price support. The funds are still at a pretty limited long position (about 25,000 lots) and, considering the market closeness to the production cost, we find it difficult for the funds to turn to the short position at the moment, strengthening the thesis that the market floor is just around the corner.
Of course the next chapters of the sugar market will depend on the fresh fundamentalist news, encouraging enough to break the resistance of 17 cents per pound. Many mills continue to watch for any more robust movement on the part of the dollar trajectory to lock sugar price in the export for 2018/2019. The fixation average for that period, considering the NDF, is at R$1,380-1,400 per ton. The market fate comes down to: find buyers short selling coverage around 16.00-16.25 cents per pound and enthusiastic sellers around 17 cents per pound, which is limiting in view of the surplus forecasts for 2017/2018. Very exciting, isn’t it?
The production forecasts in India for the 2017/2018 harvest have suffered a slight reduction from 25 million tons of sugar to 24.6 million. In the Center-South there is no concern about the weather that could shake up the market.
Fuel consumption in February/2017, according to ANP, was 4.4 billion liters, the smallest monthly consumption since February/2015. In the accumulated consumption of 12 months (March 2016 to February 2017) it fell 1.91%, coming to 57.47 billion liters. The total in equivalent gas, however, was 53,276 billion liters, a 0.03 % fall only compared to the previous period.
The steep fall in hydrous (20.81%) was compensated for by the increase in anhydrous consumption by 6.9% and in gas A by 6.0%. The consumed fuel mix based on the 12 months closed in February/2017 shows 44.8% of ethanol and 55.2% of gas A. In less than two years ethanol returned all the market it had gained over this period (it had gotten to 49% in January/2016).
Some readers draw our attention to certain sites that reproduce this weekly comment on their pages on the Internet and leave out the criticisms we make in an overwhelming way of PT (Workers’ Party) and the boss of the gang. “Why is that?”, the readers ask. I don’t know the answer. Just change sites.
Archer Consulting 28th Intensive Course on Futures, Options and Derivatives – Agricultural Commodities (in Portuguese) will be held on September 19 (Tuesday), 20 (Wednesday) and 21 (Thursday) 2017 from 9:00 am to 5:00 pm in São Paulo, SP at the Hotel Paulista Wall Street. Don’t leave it to the last minute and take advantage of the discounts.
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Have a nice weekend.
Arnaldo Luiz Corrêa
